Purview Publication: "Leveraged ETFs: Are You Prepared for the Volatility Jumps? Global Perspectives on the Short-Term versus Longer-Term Risk Profiles", Journal of Index Investing, Summer 2018

Purview's Linda Zhang has conducted a comprehensive empirical study on the short-term risk behavior of leveraged ETF products.  She extended her research beyond the U.S. markets to countries where leveraged ETFs are listed.  She has found overwhelming global evidence suggesting that the near-term volatility of leverage ETFs can be much higher than those suggested by the leverage multiples.  This original research piece contributes in both depth and scope to better understanding of a branch of ETFs that are often less understood and potentially mis-used by investors.  The full article is available at the Journal of Index Investing website for subscriptions.


Leveraged and inverse ETFs represent one of fast growing areas in the ETF industry, with the global AUM breaking $60 billion. The regulatory bodies in many countries are approving the listing of these products. The recent financial market turmoil in February 2018 has exposed the risk behavior of these ETFs in the time of market stress, which are often misunderstood by investors and can catch them by surprise. In this study, we analyze leveraged ETFs risk profiles in both short-term and long-term periods. As leveraged ETFs and inverse ETFs are often used for short-term trading purposes, understanding the nature of short-term volatility is highly critical. We also survey the landscape of the major markets with listed leveraged ETFs outside the U.S., including Asia Pacific and Canada. We examined the volatility behavior of leveraged products in these markets and came to the same conclusion. The near-term volatility jumps more than what the leverage ratio suggested. We’ve also noticed the degree of jumps vary from market to market. Globally, leveraged and inverse ETFs are growing at a healthy pace, led by a faster growth in Asia in 2016. After Japan, South Korea, and Taiwan, Hong Kong became the latest market, allowing both inverse and leveraged products on Hong Kong and China stock indexes. It is in the great interest of global investors to fully understand the nature of these instruments to use them effectively in portfolio management.